Economic Theory

Economic reflections and the riots

In many ways it is too early to draw conclusions for public policy from the riots which the country has experienced in the last week or so. But this does not seem to have deterred our ever-active politicians, dragged back from the beaches to pontificate and demand action, usually involving extra government spending. As the dust begins to settle on our city streets, it might be worth setting out some observations before we get dragged into costly and irrelevant policy switches.

First, despite the ghastly scenes we have witnessed on TV, the numbers involved are, in comparative terms, tiny. I have not been able to trace any official estimates of the numbers of individuals participating in the riots, but would hazard a guess (based on numbers arrested, television scenes and the known movement of rioters between different locations) at a maximum15-20,000 in London and another 10,000 or so elsewhere. These figures should be compared with the 200,000 who took part in the Poll Tax demonstrations that got out of hand in 1990. Or the much more serious Paris banlieue riots of 2005 which led to 10,000 cars being set on fire.  Or to put it another way, recent riots have probably involved less than half of one per cent of the relevant age group nationwide, and only perhaps 3% of the age group even in London.

These young looters and rioters were also, it is emerging, basically the ‘usual suspects’ – a high proportion of those arrested have been shown to have previous convictions. They are part of a persistent minority which plagues large cities. Government policy over many years in relation to social housing has concentrated such trouble-makers and criminals in particular areas which have been the riot flashpoints. Unreformed schools have given them a poor-quality education which has failed to instil personal discipline and moral sensibility. Sentencing policies have meant that few are deterred from committing what are admittedly mainly low-level crimes. What seems to have happened in the events of the last week is that poor operational policing decisions, reflecting inconsistent government policies and a leadership vacuum in the Metropolitan Police, allowed a pre-existing delinquent population free rein. Copycat behaviour, a human universal now assisted by new media, amplified the trouble.

There is no reason to suppose that this problem cannot now be controlled on a day-to-day basis by more intelligent policing well within the resources available to the police. There are 15% more police officers today than a decade ago, and they have not been well used. The planned cuts are appropriate (at a time, remember, when the numbers in the crucial under-25 age group, always responsible for 70% or so of crimes, are poised to drop like a stone) and should not be reversed. The police authorities, like many other government bodies, have large numbers of outstanding and committed people working for them, but they are often badly managed, inefficiently organised and subject to trade-union-protected practices which are a drag on productivity and unresponsive to the public. They need radical reform.

If the Coalition should stick to its spending and reform plans for the police, what about other areas of expenditure? Some politicians have argued that cuts in the Educational Maintenance Allowance and increases in university tuition fees should be abandoned. These arguments are as opportunistic as pinching nappies from a vandalised branch of Aldi. The EMA is a scheme aimed at keeping more young people in school or college. Large sums of money were being expended – almost 50% of 16-18 year olds in schools and colleges have been receiving it and of these, around ninety per cent would have stayed in education anyway. New proposals involve focusing financial assistance much more on the poor  in the short run, while raising the education leaving age in two years’ time makes the EMA irrelevant anyway in its stated aim. It seems unlikely that rioters have legitimate complaints here, or in relation to raised university fees, which poor students will not pay anyway.

Is unemployment the problem? Yes and no. Many of the rioters are unemployed – although a high proportion of those coming before the courts are actually in work. Much has been made of the fact that there is only one vacancy for every 54 job-seekers in Haringey, though this is misleading in that many vacancies in the small businesses which dominate that borough are never advertised, and also that most people living in what was originally a dormitory suburb work elsewhere in London. There are jobs, even for the unqualified and unskilled, in London – there would be many more if the labour market were less tightly regulated – but they do require a willingness to work hard for low pay. This willingness is in short supply amongst some young people.

There is a more general view amongst liberal-minded people that the riots are in part a consequence of growing inequality, and that one strand of our response to the riots should be measures to reduce such inequality. These would presumably involve higher taxes, controls on top pay, increased social security benefits and yet more expenditure on education, training and so forth.

It is possible to have sympathy with some of the rather pathetic characters who have emerged in courts over the last few days – themselves often ‘victims’ of poor or non-existing parenting and hopeless schooling, and with few economic prospects. But it’s not at all clear that there are easy solutions, and the reversal of Coalition policies would likely create more problems as it lost credibility with the markets – problems which would probably impact more heavily on the poor.

Higher income tax rates would bring in little extra income, and would, together with restrictions on executive pay,  almost certainly deter some investment. Taking a more generous attitude towards benefits would further entrench the culture of dependency and ‘entitlement’ which the Prime Minister sees as a large part of the problem. More public spending on education and training without very significant reform would do little for job prospects. In any case, for the worst of the rioters, no redistributive package could ever satisfy their need for effortless riches and ‘respect’ for their macho and violent lifestyles.

Some extra public spending will certainly be necessary as a result of the riots, as the government must ensure compensation for those who have lost homes and livelihoods as a result of its failure to live up to the social contract that justifies its existence. But indications are that the sums involved, though daunting for individuals, will be relatively modest. Any other attempts precipitately to overturn existing spending and taxation plans would be unwise. Once the streets have been secured, a considerable period of reflection is needed before new policy initiatives are undertaken.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

3 thoughts on “Economic reflections and the riots”

  1. Posted 15/08/2011 at 18:00 | Permalink

    Work hard for low pay? If there is any particular virtue in working for low pay as opposed to that family wage that makes a father out of a man, we may as well canonise as saints those who of their own free will work for nothing, while reproving the highest-paid in the land as supremely depraved.

  2. Posted 15/08/2011 at 20:05 | Permalink

    Is unemployment part of the problem?

    I would say the last thing most of those people would ask for is a job.

    All in all a good and thorough analysis, hope you can forgive my bit of levity.

  3. Posted 16/08/2011 at 10:06 | Permalink

    I agree with much of this. As I argued under Kristian Niemitz’s blog post, the ‘left’ interpretation that the riots were principally caused by relative poverty may well have some merit. However, as we can acknowledge that poverty may be a (not the indefinite article) structural cause but disagree with the best solution. I would argue that the poverty and inequality has been caused by the presence of state intervention, removing inequality does not require further intervention. The lack of jobs, for instance, which you highlight, is principally caused by state-produced disincentives to work (transfer payments, high marginal tax rates etc) and destruction of job creation via regulation and taxation policies. The idea that further intervention is a good solution to a problem essentially caused by intervention is patently absurd, although we see it in many areas of state intervention, it creates a sort of feedback mechanism.
    On the ‘right’ there seems to be an idea that more authoritarian policing measures and a change in ‘culture’. I fail to see either of these helping – authoritarian approaches deals with effects not causes and will probably have unintended negative consequences. In terms of culture, why ought politicians tell us what our forms of culture and behaviour ought to be when by their own policies they are encouraging exactly the sorts of behaviours they profess to abhore?? I think it better that politicans stop moralising and focus on the proper sphere of government.
    I believe, however, that a change of policy is needed, and quickly. What is needed is huge deregulation and reductions in state spending which will promote economic growth and change the incentives that such individuals face.

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